HealthSouth reaches deal, pushes back from edge of bankruptcy

HealthSouth Corp. has reached an agreement with bondholders who had threatened action that could have forced the troubled outpatient services giant into bankruptcy.

The company announced on June 8 that it has agreed to pay a majority group of bondholders between $73 million and $80 million as it works to restructure nearly $2.6 billion in debt. The agreement should settle a dispute that has been brewing for nearly three months.

"I think it's a very, very good deal for the bondholders and I think it is beneficial for the company," said Brad Scheler, a New York-based attorney representing the bondholders. "It is a reasonable and fair number for all."

Jay Grinney, HealthSouth's newly appointed president and chief executive officer, said in a written statement that the agreement "represents a very significant step toward completion of our financial restructuring."

The bondholders had sought accelerated payments from HealthSouth after claiming that the company defaulted on its bonds. HealthSouth sued to block the action, saying the move could have forced the company into bankruptcy.

HealthSouth said it would drop the litigation once the new agreement with bondholders was completed, which Scheler said could happen within weeks.

HealthSouth has suffered financially in the wake of a massive accounting scandal. Federal prosecutors have accused the company of overstating earnings by $2.7 billion or more over several years in a scheme to meet Wall Street expectations. Seventeen former employees have agreed to plead guilty to various criminal charges, and ousted chief executive Richard M. Scrushy is awaiting trial for fraud.

Since the investigation was revealed in March 2003, HealthSouth has worked to become current on its interest payments, audit its accounting practices and entrench new leadership to steer the company back to solid financial footing.